Juggling Dynamite

While the financial sales force likes to declare low unemployment as bullish for the economy and stocks, my partner Cory Venable offers the below chart to remind of the negative correlation between US unemployment cycles (in blue) and S&P 500 price cycles (in green) since 1994.  Word to the wise:  both lines are ripe for mean reversion, as they did in the last two recessions (pink bands); i.e., unemployment headed up and stocks down.
Thanks to destructive incentives that encourage people to save little and borrow and spend too much, along with harmful advice from the financial industry, most workers have debt and little savings to fall back on when unemployment moves back up.  What savings most do have is generally funnelled into baskets of stocks and corporate bonds that tank in value just as their owners need cash to pay their bills.  Forced liquidations during the downturns then amplify financial turbulence and loss for individuals and the economy.

It doesn’t have to be this way.  Market cycles are a regular recurring part of human life.  Proactive planning and risk management are critical if we are to thrive through the cycles of our finite lifespans.

Even though the Bank of Canada paused in hiking its policy rates in December and yesterday, many Canadians are already contending with a doubling of interest rates on their unsecured lines of credit in the past year. At the same time, realty prices are falling,  making it harder to refinance unsecured debts into a lower rate mortgage on their home.  Not surprisingly, insolvencies are rising sharply.

Canadians are increasingly feeling the pinch from rising rates, with insolvencies back on the rise. For more on how consumers can avoid falling into dire straits, BNN Bloomberg spoke with Scott Terrio, insolvency trustee at Hoyes, Michalos and Associates. Here is a direct video link.

Danielle was a guest with Kerry Lutz on The Financial Survival Network talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.

As mentioned in this discussion, here is a link to my article A word to the gold bugs.